Distribution Channels
DISTRIBUTION
DEFINITION
A distribution channel is a set of independent organizations involved in the process of making a product or service available to the consumer or a business user.
IMPORTANCE OF DISTRIBUTION CHANNELS
The main function of a distribution channel is to provide a link between production and consumption. Organisations that form any particular distribution channel perform many key functions:
Information Gathering and distributing market research and intelligence - important for marketing planning
Promotion Developing and spreading communications about offers
Contact Finding and communicating with prospective buyers
Matching Adjusting the offer to fit a buyer's needs, including grading, assembling and packaging
Negotiation Reaching agreement on price and other terms of the offer
Physical distribution Transporting and storing goods
Financing Acquiring and using funds to cover the costs of the distribution channel
Risk taking Assuming some commercial risks by operating the channel (e.g. holding stock)
All of the above functions need to be undertaken in any market. The question is - who performs them and how many levels there need to be in the distribution channel in order to make it cost effective.
CHANNEL LEVELS OF DISTRIBUTION
Each layer of marketing intermediaries that performs some work in bringing the product to its final buyer is a "channel level". The figure below shows some examples of channel levels for consumer marketing channels:
In the figure above, Channel 1 is called a "direct-marketing" channel, since it has no intermediary levels. In this case the manufacturer sells directly to customers. An example of a direct marketing channel would be a factory outlet store. Many holiday companies also market direct to consumers, bypassing a traditional retail intermediary - the travel agent.
The remaining channels are "indirect-marketing channels".
Channel 2 contains one intermediary. In consumer markets, this is typically
DEFINITION
A distribution channel is a set of independent organizations involved in the process of making a product or service available to the consumer or a business user.
IMPORTANCE OF DISTRIBUTION CHANNELS
The main function of a distribution channel is to provide a link between production and consumption. Organisations that form any particular distribution channel perform many key functions:
Information Gathering and distributing market research and intelligence - important for marketing planning
Promotion Developing and spreading communications about offers
Contact Finding and communicating with prospective buyers
Matching Adjusting the offer to fit a buyer's needs, including grading, assembling and packaging
Negotiation Reaching agreement on price and other terms of the offer
Physical distribution Transporting and storing goods
Financing Acquiring and using funds to cover the costs of the distribution channel
Risk taking Assuming some commercial risks by operating the channel (e.g. holding stock)
All of the above functions need to be undertaken in any market. The question is - who performs them and how many levels there need to be in the distribution channel in order to make it cost effective.
CHANNEL LEVELS OF DISTRIBUTION
Each layer of marketing intermediaries that performs some work in bringing the product to its final buyer is a "channel level". The figure below shows some examples of channel levels for consumer marketing channels:
In the figure above, Channel 1 is called a "direct-marketing" channel, since it has no intermediary levels. In this case the manufacturer sells directly to customers. An example of a direct marketing channel would be a factory outlet store. Many holiday companies also market direct to consumers, bypassing a traditional retail intermediary - the travel agent.
The remaining channels are "indirect-marketing channels".
Channel 2 contains one intermediary. In consumer markets, this is typically